Question

Question: The following information pertains to Smith Company for the year:

Estimated manufacturing overhead	\(500,000	Actual manufacturing overhead	\)550,000
Estimated direct labor hours	10,000 hours	Actual direct labor hours	10,500 hours

13. Calculate the predetermined overhead allocation rate using direct labor hours as the allocation base.

14. Determine the amount of overhead allocated during the year. Record the journal entry.

15. Determine the amount of underallocated or overallocated overhead. Record the journal entry to adjust Manufacturing

Overhead.

Short answer

Answer:

The predetermined overhead allocation rate is $50

Date	Particulars	Debit ($)	Credit ($)
	Work-in-process inventory	525,000
	Manufacturing overhead		525,000

Date	Particulars	Debit ($)	Credit ($)
	Cost of goods sold	25,000
	Manufacturing overhead		25,000

Step-by-step solution

Predetermined overhead allocation rate

$$\begin{gathered} \mathit{P}\mathit{r}\mathit{e}\mathit{d}\mathit{e}\mathit{t}\mathit{e}\mathit{r}\mathit{r}\mathit{m}\mathit{i}\mathit{n}\mathit{e}\mathit{d}\mathbf{}\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{=}\frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{m}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{O}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{}\mathbf{cos}\mathbf{t}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{e}\mathbf{s}\mathbf{t}\mathbf{i}\mathbf{m}\mathbf{a}\mathbf{t}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{L}\mathbf{a}\mathbf{b}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{}\mathbf{h}\mathbf{o}\mathbf{u}\mathbf{r}\mathbf{s}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{t}\mathbf{h}\mathbf{e}\mathbf{}\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{h}\mathbf{e}\mathbf{a}\mathbf{d}\mathbf{}\mathbf{a}\mathbf{l}\mathbf{l}\mathbf{o}\mathbf{c}\mathbf{a}\mathbf{t}\mathbf{i}\mathbf{o}\mathbf{n}\mathbf{}\mathbf{b}\mathbf{a}\mathbf{s}\mathbf{e}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}}{\mathbf{10}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{50} \end{gathered}$$

Manufacturing overhead allocation during the year

$$\begin{gathered} \mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathit{m}\mathit{a}\mathit{n}\mathit{u}\mathit{f}\mathit{a}\mathit{c}\mathit{t}\mathit{u}\mathit{r}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathbf{}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathbf{=}\mathit{P}\mathit{r}\mathit{e}\mathit{d}\mathit{e}\mathit{t}\mathit{e}\mathit{r}\mathit{r}\mathit{m}\mathit{i}\mathit{n}\mathit{e}\mathit{d}\mathbf{}\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{\times }\mathit{A}\mathit{n}\mathit{n}\mathit{u}\mathit{a}\mathit{l}\mathbf{}\mathit{l}\mathit{a}\mathit{b}\mathit{o}\mathit{r}\mathbf{}\mathit{h}\mathit{o}\mathit{u}\mathit{r}\mathit{s}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{t}\mathit{h}\mathit{e}\mathbf{}\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{b}\mathit{a}\mathit{s}\mathit{e} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{50}\mathbf{\times }\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{500} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{525}\mathbf{,}\mathbf{000} \end{gathered}$$

Underallocated or overallocated overhead

$$\begin{gathered} \mathit{U}\mathit{n}\mathit{d}\mathit{e}\mathit{r}\mathbf{}\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathbf{}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathbf{=}\mathit{A}\mathit{c}\mathit{t}\mathit{u}\mathit{a}\mathit{l}\mathbf{}\mathit{m}\mathit{a}\mathit{n}\mathit{u}\mathit{f}\mathit{a}\mathit{c}\mathit{t}\mathit{u}\mathit{r}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d}\mathbf{}\mathbf{\times }\mathbf{}\mathit{a}\mathit{l}\mathit{l}\mathit{o}\mathit{c}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathbf{}\mathit{m}\mathit{a}\mathit{n}\mathit{u}\mathit{f}\mathit{a}\mathit{c}\mathit{t}\mathit{u}\mathit{r}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathit{h}\mathit{e}\mathit{a}\mathit{d} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{550}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{525}\mathbf{,}\mathbf{500} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{25}\mathbf{,}\mathbf{000} \end{gathered}$$